How to Avoid TROUBLE: Legal Ethics for In House Counsel Featuring Larry Tucker

© 2015 Armstrong Teasdale LLP



Larry Tucker

April 8, 2015

How to Avoid Trouble:

Legal Ethics for In-House

Counsel


Topics for Today’s Presentation:

How do the rules of professional conduct apply to in-

house counsel?

Who is your client?

What impact does emerging technology have on the

legal ethics aspects of your job?

What are the ethical duties of an in-house counsel

when performing non-legal duties?


How do the Rules of Professional

Conduct Apply to In-house Counsel?

The Rules are made up of a Preamble, nine sets of rules, comments and

in Missouri two appendices having to do with IOLTA (Interest on

Lawyers’ Trust Accounts) and interactions with members of the medical

profession.

The Preamble in both Missouri and Kansas says that the Rules are

“rules of reason” and that they are intended to be “partly obligatory

and disciplinary and partly constitutive and descriptive in that they

define a lawyer’s professional role.”

They apply to every lawyer, no matter what professional role that lawyer

may play (e. g., an advisor, an advocate, a negotiator, an evaluator or as

a third-party neutral).

They also apply to lawyers who are not in the active practice of law, and

to “practicing lawyers even when they are acting in a nonprofessional

capacity.”

There are some Rules which have particular application for a lawyer

practicing as in-house counsel.


Rules Which all In-house Counsel Need

to Understand and Apply:

Rule 1.0

Rule 1.10

Rule 1.7

Rule 1.13

Rule 5.1

Rule 5.3


Rule 1.0

Terminology---“Firm” or “law firm” includes “lawyers practicing in …a legal department of a corporation or other organization”.

• Comment 3 to that rule says: “With respect to the law department of an organization, including the government, there is ordinarily no question that members of the department constitute a firm within the meaning of the Rules of Professional Conduct. There can be uncertainty, however, as to the identity of the client. For example, it may not be clear whether the law department of a corporation represents a subsidiary or an affiliated corporation as well as the corporation by which the members of the department are directly employed….”


Rule 1.10

Imputation of Conflicts of Interest: General Rule---

This extends to lawyers who are “associated in a

firm”.


Rule 1.7

Conflict of Interest: Current Clients---Some conflicts

cannot be waived. What does a corporation do if an in

house counsel has one? (e.g., counsel working for

one subsidiary is directly adverse to the interests of

another subsidiary, owned by a common parent?)


Rule 1.13

Organization as Client---The entity is the client of the

lawyer. There are times (according to one of the

Comments) “when the organization’s interests may

become adverse to one or more constituents.” A

“constituent” is an officer, director, employee or

shareholder of a corporation.


RULE 5.1

Responsibilities of Partners, Manager and Supervisory Lawyers--- Describes the duty of a lawyer with managerial authority in a “law firm” to make reasonable efforts to ensure that the “firm” has effective measures to assure all lawyers conform their conduct to the Rules.

• A Comment to the Rule makes it clear that it applies to lawyers in a “law department” with comparable managerial authority to a partner in a private law firm.

• The Comments also say that the effective measures which need to be put into place should be designed to “detect and resolve conflicts of interest, identify dates by which actions must be taken in pending matters, account for client funds and property and ensure that inexperienced lawyers are properly supervised.”


RULE 5.3

Law Firms and Associations: Responsibilities Regarding Non-lawyer Assistance---Describes duty of a lawyer with managerial authority in a “law firm” to make reasonable efforts to assure that a non-lawyer employed or retained by the “firm” adheres to the Rules.

Comments make it clear that this duty extends to non-lawyers within and outside of the “firm” who work on “firm” matters.

For non-lawyers within the firm, the duty is to provide the necessary instruction and supervision concerning the ethical aspects of their employment, with a particular focus on the confidential nature of the information they will work with.

For non-lawyers outside of the firm the duty is extended based on the circumstances of the use of those non-lawyers.

In Kansas, there are more detailed comments with regard to non-lawyers working outside the “firm” than in Missouri, but the principle is the same for each state. In-house counsel bear some responsibility to assure that non-employees who provide services to the legal department are aware of the ethical aspects of any work that might be assigned to those persons.


Case Studies on the Rules with Particular

Application to In-House Counsel

First Case: Your legal department hires a new lawyer

from the firm you usually use as outside counsel. You

learn that while at that outside firm, the lawyer

represented a company which your company is

negotiating with to acquire. What steps should you

take?


Case Studies on the Rules with Particular

Application to In-House Counsel

Second Case: A member of the legal department you

head provides advice to the CEO of a corporate

subsidiary about the legal consequences of the

organization’s plan to spin off the subsidiary. How

should you respond?


Other Supreme Court Rules Which

Apply Only to In-House Counsel In both Missouri and Kansas, in-house counsel are subject of special rules

governing their admission to practice.

Missouri’s rule—4-8.105—and Kansas’ rule—Rule 712—have some things in common and some things which are different.

Missouri Rule 4-8.105 permits a lawyer already admitted to practice in another jurisdiction to apply for admission and the issuance of a “limited” license to practice which permits the exclusive practice of law for “a corporation, it subsidiaries or affiliates, an association; a business; or a governmental entity” where the employer is not in the business of the “practice of law or the provision of legal services”. The limited license also permits the lawyer to provide pro bono services with an organization approved to provide those services by the Missouri Bar.

Kansas Rule 712 is much like Missouri’s but it also requires that an applicant for a “restricted” license to have an attorney “actively engaged in the practice of law in Kansas agree in writing, to supervise and be responsible for the acts” of the applicant between the time the application is filed and a restricted license is issued. The restriction on the license is that the lawyer must work full time on the business of the lawyer’s employer and the lawyer must receive his or her entire compensation from that employer for the rendering of those services.


Who is Your Client?

Rule 1.13 as adopted in Missouri and Kansas addresses this question.

The comments to the rule add to an understanding of how the rule is meant to

apply.

What does the rule cover?

A. The client is the “organization acting through its duly authorized constituents”.

B. If the lawyer knows that a constituent or “other person associated with the

organization” is or intends to act in a way which violates either a legal obligation

to the organization or violates the law in a way which may be imputed to the

organization, then the lawyer “shall proceed as is reasonably necessary in the

best interest of the organization.”

The measures a lawyer should take under B are set out to “report up” and seek a

resolution.

C. If the “reporting up” does not work, in some instances the lawyer may resign in

accord with Rule 1.16.

D. The “Miranda Warning” for dealings with constituents.

E. When dual representation of the organization and constituents is permissible.


Case Studies on Rule 1.13

First case: The CEO asks that you advise her about a

request from the Board of Directors that she should

undergo psychological testing. What should you

say?


Case Studies on Rule 1.13

Second case: You learn that the Vice President of

Sales has been requiring his staff to report sales as

having occurred in a manner which is inconsistent

with the organization’s accounting practices. The VP

of Sales is the son of the CEO. What should you do?


What Impact does Emerging Technology

have on the Legal Ethics Aspects of Your

Job? The Rules in Missouri make few references to modern

technology. The Rules in Kansas are more current.

• Rule 1.0 which has definitions of terms for use in the

Rules does include in the definition of the term

“writing” or “written” references to email and the use of

electronic means to sign documents. Both states

have made this change.




Job? In Kansas, the updates from the ABA’s Ethics 20/20 Project have

been adopted. Missouri has not yet done that.

• KRPC 1.1: Competence—includes a comment saying lawyers

must remain competent by keeping abreast of “the benefits and

risks associated with relevant technology….”

• KRPC 1.4: Communications—Comment eliminates the

reference to “telephone calls” and broadens the application of the

rule requiring a lawyer to keep a client well informed.

• KRPC 1.6: Confidentiality of Information—Broadens duty of

lawyer to protect against disclosure of confidential information

stored or communicated through new technology.

• KRPC 4.4: Respect for Rights of Third Person—expands to

electronically stored information the duty to inform of an

inadvertent disclosure of privileged information.




Job? In both states, the Supreme Court is likely to expect that the ethical

duties of lawyers must keep up with the changes in technology. The

Rules were first adopted in the 1980’s and while the means of creating,

storing and transmitting information has changed in the intervening

years, the duties have not.

What do the Rules mean to in-house counsel? They require diligence

in managing information relating to the work of the legal department so

that:

• The client is kept well informed.

• The information stored by the legal department is protected from

unauthorized disclosure.

• The organization understands how new technology may impact its work.

For instance, the fact that nearly every person has the means to capture

information on smart phones; a majority of employees use social media;

there are constant challenges from data thieves, and information while

more easily created and captured, is now much harder to maintain in a

secure environment.


Case Studies in the Application of

Technology to the Legal Ethics Aspect

of In-House Counsel’s Jobs:

First case: You learn that one of the lawyers in your

legal department has been taking his laptop home

with documents relating to a large transaction being

pursued by your company stored on it. Now, he has

told you that the laptop was stolen from his car

overnight. What should you do?


Case Studies in the Application of

Technology to the Legal Ethics Aspect

of In-House Counsel’s Jobs:

Second case: You learn that employees of your

company are using social media to discuss the work

they are doing for your company. Much of what is

discussed is just general talk about work but some

relates to information which your company deems to

be confidential business information and a trade

secret. What should you advise your employer to

do?


What are the Ethical Duties of an In-

House Counsel when Performing Non-

legal Duties? The same ethical duties as apply when the in-house

counsel is acting as a lawyer.

The Preamble to the Rules makes it clear that the Rules

are meant to apply to conduct of a lawyer when the lawyer

is not acting in an explicitly legal role.

Case law also confirms that. In Missouri the case of In re

Hess, 406 S. W. 3d 37 ( Mo banc. 2013) confirms this. In

Kansas, the case of In re Mintz, 317 P. 3d 756 (Kan. 2014)

also confirms this point.

The facts in Hess and in Mintz demonstrate how the Rules

can be applied to the conduct of a lawyer when not acting

as a lawyer.


What are the Ethical Duties of an In-

House Counsel when Performing Non-

legal Duties? When an in-house lawyer acts in a non-legal capacity

there are occasions when the rules of evidence in litigation can come into conflict with the Rules governing professional conduct.

The Attorney-Client Privilege and the duty of confidentiality under Rule 1.6 are not the same things.

The rule of evidence deals with what a lawyer may say in a court proceeding. In Missouri, the statute governing the privilege characterizes it as a matter of the attorney’s competence to testify. See §491.060 RSMo. In Kansas, the statute is more detailed. See KSA 60-426. Both have been construed by the courts similarly.

The Rule of Professional Conduct, Rule 1.6 is directed to prohibiting a lawyer from revealing information relating to the representation of a client whether in a court proceeding or not.


Case Studies of the Application of the

Rules to an In-House Lawyer Acting in a

Non-legal Capacity:

First case study: Your CEO in communicating with others in the

company about a class action filed against the company

claiming that one its products is defective and she copies you

on each of her messages. She asks the product development

people to determine how much it would have cost to have fixed

the alleged defect before the product was sold and how much to

fix the defect after the first claims had been received. The

product development people respond with a calculation of those

costs. You are copied on each communication. Your company

receives a discovery request seeking all communications within

the company which addressed the issue of the cost to repair the

alleged defect. What should your advice to your company be

about the production of the emails between the CEO and the

product development people?


Case Studies of the Application of the

Rules to an In-House Lawyer Acting in a

Non-legal Capacity:

Second case study: Your CEO tells you that she

knew that your company’s product was defective

when it was sold to the public. She said that she

knew that it could have been made safe by incurring

additional cost, but that she chose to not authorize

that cost in order to increase the profits on the sale of

those products. There is no suit pending when you

are told this. She tells you that she is confiding in you

and that you should tell no one else. You are

concerned by this revelation. You think you should

do something to make this information known. What

should you do?


Questions?


Contact

Larry Tucker

816.472.3123

[email protected]

mailto:[email protected]


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